Here's What Happened The Last Time The World Descended Into A 'Currency War'

After the first real test to the rally that began after the stock
market bottomed in March 2009, in which the market seemed poised
to plunge back downward, Fed chairman Ben Bernanke pre-announced QE2 in an
unprecedented expansion of the central bank's balance sheet to
boost the economy.

Only a month later, following easing decisions not only from the
Fed, but from other central banks in emerging and advanced
economies around the world, Brazil's finance minister Guido
Mantega made headlines after warning that an "international
currency war" had broken out as countries engaged in a race to
the bottom to devalue their currencies, hoping this would boost
exports to other countries and thus economic growth.

Japan was the victor – both the euro and the dollar strengthened
against the yen. The dollar also strengthened against the euro
pretty substantially, but weakened against the British pound and
the Chinese yuan.

However, the extent to which the currencies weaken against each
other this time around will ultimately depend on the size and
duration of the easing programs underway. And both are unclear in
the case of some major actors like the Fed and the ECB at the
moment.

Regardless, Morgan Stanley believes the world is
experiencing what they call the "Great Monetary Easing, Part 2" –
in a recent note, analysts wrote that "the [global economic]
expansion will remain supported as a large number of central
banks globally (continue to) deliver more easing over the next
few quarters on our forecasts – and stand ready to do much more
than in our base case if Europe’s crisis deteriorates
significantly."